COMM LAW CASES (MIDTERM)

SURETY
 G.R. No. 126490
PALMARES VS CA
FACTS ISSUE RULING
Respondent M.B. Lending Corporation extended a loan to the WON the petitioner can be YES.
spouses Osmeña and Merlyn Azarraga, together with considered as a surety The Civil Code pertinently provides:
petitioner Estrella Palmares, in the amount of P30,000.00
plus compounded interest at the rate of 6% per annum to be Art. 2047. By guaranty, a person called the guarantor binds
computed every 30 days from the date thereof. On four himself to the creditor to fulfill the obligation of the principal
occasions after the execution of the promissory note and debtor in case the latter should fail to do so.
even after the loan matured, petitioner and the Azarraga
spouses defaulted on the payment of the remaining balance. If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be
Respondent corporation filed a complaint against petitioner observed. In such case the contract is called a suretyship.
Palmares as the lone party-defendant, to the exclusion of the
principal debtors, allegedly by reason of the insolvency of the In the case at bar, petitioner expressly bound herself to be jointly
latter. and severally or solidarily liable with the principal maker of the
note. The terms of the contract are clear, explicit and unequivocal
Petitioner alleged that immediately after the loan matured, that petitioner's liability is that of a surety.
she offered to settle the obligation with respondent
corporation but the latter informed her that they would try to The undertaking to pay upon default of the principal debtor does
collect from the spouses Azarraga. not automatically remove it from the ambit of a contract of
suretyship. The second and third paragraphs of the aforequoted
The RTC dismissed the complaint and held that that the offer portion of the promissory note do not contain any other condition
made by petitioner to pay the obligation is considered a valid for the enforcement of respondent corporation's right against
tender of payment sufficient to discharge a person's petitioner. It has not been shown, either in the contract or the
secondary liability on the instrument; as co-maker, is only pleadings, that respondent corporation agreed to proceed against
secondarily liable on the instrument; and that the promissory herein petitioner only if and when the defaulting principal has
note is a contract of adhesion. However, this was overturned become insolvent. A contract of suretyship is that wherein one
by the respondent CA. The appellate court declared that lends his credit by joining in the principal debtor's obligation, so
petitioner Palmares is a surety since she bound herself to be as to render himself directly and primarily responsible with him,
jointly and severally or solidarily liable with the principal and without reference to the solvency of the principal.
debtors, the Azarraga spouses, when she signed as a co-
maker. As such, petitioner is primarily liable on the note and A surety is bound equally and absolutely with the principal, and as
hence may be sued by the creditor corporation for the entire such is deemed an original promisor and debtor from the
obligation. beginning. This is because in suretyship there is but one contract,
and the surety is bound by the same agreement which binds the
Hence, the present petition. principal. In essence, the contract of a surety starts with the
agreement.
 G.R. No. 140047
PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION VS V.P. EUSEBIO CONSTRUCTION
FACTS ISSUE RULING
The construction of the Institute of Physical Therapy– WON the petitioner entitled for reimbursement of what NO.
Medical Rehabilitation Center in Baghdad was awarded it paid under Letter of Guarantee it issued based on the
to Ajyal Trading and Contracting Company. Respondent deed of undertaking and surety bond from the The petitioner is not entitled for reimbursement of
spouses Santos, in behalf of respondent 3-Plex respondents what it paid as the petitioner is a guarantor and not a
International, Inc., a local contractor engaged in surety.
construction business, entered into a joint venture
agreement with Ajyal wherein the former undertook By guaranty, a person binds himself to the creditor to
the execution of the entire Project, while the latter fulfill the obligation of the principal debtor in case the
would be entitled to a commission of 4% of the contract latter should fail to do so. If a person binds himself
price. solidarily with the principal debtor, the contract is called
suretyship.
The SOB required the contractors to submit a
performance bond and an advance payment bond, It is characterized by its subsidiary and conditional
hence, the respondents applied for the issuance of quality because it does not take effect until the
guarantee with the petitioner. fulfillment of the condition, namely, that the principal
obligor should fail in his obligation at the time and in
Because of the delay in the construction of the project the form he bound himself.
and slow progress of work, the project was not
completed as scheduled. Foreseeing the impossibility It appears that the Letter of Guarantee merely stated
of meeting the deadline, the joint venture contractor that in the event of default by respondent VPECI the
worked for extension of the bond which was granted. petitioner shall pay, the obligation assumed by the
However, Al Ahli Bank of Kuwait demanded the full petitioner was simply that of an unconditional guaranty,
payment of its performance bond counter-guarantee. not conditional guaranty. Besides, surety is never
The petitioner remitted the amount representing full presumed. A party should not be considered a surety
payment of the performance counter-guarantee for the where the contract itself stipulates that he is acting
project and reiterated the joint and solidary obligation only as a guarantor. It is only when the guarantor binds
of the respondents to reimburse the petitioner for the himself solidarily with the principal debtor that the
advances made. However, the respondents failed to pay contract becomes one of suretyship.
the petitioner, hence, the latter filed a civil case for
collection of the amount.

The RTC ruled against the petitioner. On appeal, the